“What happens if they go bust? I can tell you the simple answer: mayhem. As bad as, conceivably worse than, the failure of large and complex banks,”

Tuesday, January 17, 2012

By Paul Martin

Financial Clearing Houses: The Next Casualty Of The Crisis?

TheDailyBail.com

Reuters

Jan 16 (Reuters) – Clearing houses — the plumbers of high finance — could become the next casualties of the crisis as regulators insist that banks run their riskiest and private trades through them.

At the moment banks conduct over-the-counter trades between themselves: one to one dealings often involving multimillion-euro bets on differences in interest or other rates, the scale and complexity of which can be difficult to track.

But with the financial crisis still raging and banks, hedge funds and governments alike faced with unforeseen levels of debt, regulators are now forcing this shadowy, $600-trillion industry into the light.

The question being asked by industry insiders is whether the clearing houses, also known as central counterparties (CCPs), are any more secure.

“What happens if they go bust? I can tell you the simple answer: mayhem. As bad as, conceivably worse than, the failure of large and complex banks,” Paul Tucker, deputy governor of the Bank of England, said in October.